Base Erosion and Profit Shifting (BEPS) refers to tax planning strategies that exploit gaps and mismatches in tax rules to make profits ‘disappear’ for tax purposes and/or to shift profits to locations where there is little or no real activity but the taxes are low. This results in little or no overall corporate tax being paid.

OECD’s BEPS Action 7 seeks to develop changes to the definition of a Permanent Establishment (PE) to prevent the artificial avoidance of PE status in relation to BEPS, including through the use of commissionaire arrangements and the specific activity exemptions. Work on these issues also aims to address related profit attribution issues.

In its comments to the OECD/BEPS Discussion Draft, ICC emphasized that all of the options as put forward by the OECD are likely to have unintended consequences. ICC is particularly concerned that investment and cross border trade may be discouraged. It is key that activities which are genuinely of a preparatory or auxiliary nature should be excluded from the definition of a PE. Furthermore, ICC suggests that there is a strong case for applying the existing rules where there is no intended abuse and where arrangements, often of long standing nature, represent an efficient way of conducting business.